Abhijit Sen Gupta

Does Capital Account Openness Lower Inflation

This paper investigates the relationship between capital account openness and inflation since the 1980s. It argues that widespread capital account liberalization during the last two decades appears to have contributed to the worldwide disinflation observed during the same period. The paper builds a theoretical model to motivate the presence of a negative link between financial integration and inflation. It tests the prediction of the theoretical model by employing static and dynamic panel data procedures. Financial integration appears to discipline monetary authorities, or to help them convince the private sector that they will be more disciplined in the future.

India’s Tryst with the Global Financial Crisis

This paper analyses the impact of the global financial crisis on India. Contrary to early beliefs, India was significantly affected by this crisis through the trade and financial channels. Moreover, India was at an especially vulnerable point when the crisis hit as it was already experiencing an autonomous slowdown due to other adverse domestic and external factors, which got aggravated by the crisis. The Indian policy response has been swift with fiscal policy geared to provide stimulus, and the monetary policy aimed at providing liquidity. However, with limited fiscal space and a relatively weak monetary transmission mechanism, the impact of these measures is likely to be muted in the immediate future. The recovery to a high growth rate will depend on rejuvenating exports and private investment in the medium term. While recovery of the global growth rate is essential to stimulate exports, certain domestic policies like a competitive exchange rate, cost of capital, etc. will be crucial for revival.